India in Transition

About IiT

India in Transition (IiT), allows scholars from all over the world, the opportunity to exchange various analyses and innovative ideas about India's current status and growth. A complete archive of issues is maintained here.

IiT presents brief, analytical perspectives on the ongoing transformations in contemporary India based on cutting-edge research in the areas of economy, environment, foreign policy and security, human capital, science and technology, and society and culture. A Hindi translation accompanies each published article and can be found on CASI's Web site along with related online resources.

In addition to appearing on CASI's website, IiT articles are published in India-based outlets The Hindu: Business Line and Amar Ujala. Past issues have appeared in the op-ed pages of the Indian newspapers, Hindustan, that has nearly 25 million in readership, and in Livemint, an online publication launched in collaboration with The Wall Street Journal. All viewpoints, positions, and conclusions expressed in IiT are solely those of the author(s) and not specifically those of CASI.

Inclusive Growth—also called “pro-poor” growth—has become an important idea in the development discourse in India. It has widespread support because it combines the two most important ideas in development: income growth along with a progressive (or more egalitarian) distribution. The term was first embraced in the early 2000s by the UPA-1 government under PM Manmohan Singh. It has since been taken up by the NDA government under PM Narendra Modi. But is “inclusive growth” anything more than a slogan like “Sabka Saath, Sabka Vikas?”

In light of the objective of the Government of India to double the income of farmers by the year 2022, we examined the issue of “Sabka Vikas” by analyzing the National Sample Survey Organization’s Situation Assessment Survey of Farmers conducted in 2003 and Situation Assessment Survey of Agricultural Households in 2013. Because agriculture employs close to half the labor force in the country but generates the lowest per capita output (and hence is associated with the highest levels of poverty), it is clear that if there is to be inclusive growth in India, it has to begin in the agricultural sector. If there was overall income growth between the surveys, and incomes at the bottom end of the income distribution (of small and marginal landholders) grew faster than at the higher end (of large landholders), it would be possible to conclude that inclusive growth had taken place. We looked for evidence on the inclusiveness of growth in the agricultural sector.

Between 2003-13, we found evidence of overall income growth by a factor of 1.34 in real terms. However, we also found that the land rich saw their incomes grow fastest; the land poor, the slowest. Households with over 10 hectares of land (the largest landownership class in India) saw their incomes double. In fact, all households with at least 1 hectare of land saw their income increase by at least 1.5 times. The slowest growth of income was among the smaller landholders; marginal landholders (with less than 0.4 hectares) saw their incomes grow by a mere 1.1 times. In general, the smaller the landholding class, the slower the income growth. As far as land ownership is concerned, the opposite of inclusive growth—a regressive growth—had taken place.

These differences in averages were indicative of high income inequality. We used the Gini Coefficient—a popular measure of inequality that takes a value between 0 and 1, with a value of 0 for perfect equality and higher values indicating higher levels of inequality—to measure income inequality. We found a Gini Coefficient of about 0.6 for income between 2003-13. This is expected to be an underestimate because, as is well-known, surveys are typically unable to reach households at the very top of the income distribution.

To put it in context, if this level of income inequality were to hold for the whole nation (and there are good reasons to think that it is more than likely), then it would be among the highest levels in the world. There is a serious warning here that goes well beyond the agricultural sector—income inequality in India is extremely high, far higher than the utterly misleading inequality estimates derived from expenditure surveys that range between Gini Coefficients of 0.29 to 0.38 (in the rural and urban sectors respectively). Our findings provide narrow but robust support for an emerging consensus that income inequality in India is very high.

The stagnation of incomes in a couple of states (Bihar and West Bengal) and lack of diversification of income sources in many major states speak directly to the question of inclusive growth and income inequality at the sub-national level. In 2013, cultivation provided close to half (49 percent) of the total income, and more than half the income in several important states (Punjab, Haryana, Karnataka, Telangana, Maharashtra, Assam, Madhya Pradesh, Chhattisgarh, Uttar Pradesh, and Bihar). While wages were important (providing about 31 percent of incomes in 2013) they had grown more slowly than income from cultivation. The least significant income source was non-farm business (8 percent). It is important to note that non-farm businesses did not provide more than 10 percent of total income in any but three states (Kerala, West Bengal, and Tamil Nadu). The patterns we found do not square with the assertion in a recent Niti Aayog discussion paper that “about two third of rural income is now generated in non-agricultural activities.”

How optimistic can we be of the possibility of inclusive growth given the low levels of income from cultivation (and agriculture, in general) and the continuing fragmentation of agricultural land? From 2010-11, the average landholding size was 1.15 hectares. In the 40 years that the agricultural census has been undertaken, the average landholding size has decreased by about half, and the number of marginal landholdings has grown three-fold. This continuing fragmentation of land has had serious consequences for both income generation and income inequality in the agricultural sector. We found that land possession was the key variable in determining income from cultivation, which accounted for half of income inequality in our calculations, and hence was the key variable in explaining income inequality.

In a recent column in Mint, Niranjan Rajadhyaksha pointed out that back in 1936, the manifesto of the Independent Labour Party, formed by B. R. Ambedkar, highlighted the problem of “fragmentation of holdings and the consequent poverty of the agriculturists.” We are also reminded of the judgment delivered three decades ago by Sukhamoy Chakravarty, who was closely involved with Indian planning, “that no sustainable improvement in the distribution of incomes is possible without reducing the ‘effective’ scarcity of land.” That has clearly not happened, and neither has there been a significant shift of agricultural labor to rural non-farm or urban work. A telling sign of this stagnation in agriculture is the fact that cultivation income outgrew both wage income and income from non-farm business between 2003-13.

Given the difficulties faced by small farms in realizing scale economies, accessing credit, or getting into market-oriented as opposed to subsistence farming, it is very likely that most policies geared toward increasing productivity will primarily benefit larger farms. This is not an argument against increasing productivity, but simply a reminder that marginal and small landholders will benefit least from big ticket policies that aim to “double farmer income by 2022” in a business-as-usual scenario without addressing the issue of land fragmentation. Even if a doubling of income for farmers was feasible, it would almost certainly be based on the income growth of large landholders. The continuing fragmentation of agricultural land all but ensures that inclusive growth will not be possible in the agricultural sector (and, as a result, possibly all of India) by the year 2022 (or the foreseeable future). If B. R. Ambedkar or Sukhamoy Chakravarty were around to comment on the current scenario, they would not be surprised.

India in Transition (IiT) is published by the Center for the Advanced Study of India (CASI) of the University of Pennsylvania. All viewpoints, positions, and conclusions expressed in IiT are solely those of the author(s) and not specifically those of CASI.